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IGWEONYIA OBIAGELI .V

THE ANALYSIS OF VALUE ADDED TAX AND

ITS IMPACT

ON THE NIGERIA ECONOMY

BUSINESS ADMINISTRATION

ACCOUNTANCY

Okeke,chioma m

Digitally Signed by: University of Nigeria,

Nsukka

DN : CN = okeke,chioma m

O= University of Nigeria, Nsukka

OU = Innovation Centre

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THE ANALYSIS OF VALUE ADDED TAX AND ITS IMPACT



PG/ MBA/09/54303

DEPARTMENT OF ACCOUNTANCY

FACULTY OF BUSINESS ADMINISTRATION

UNIVERSITY OF NIGERIA

ENUGU CAMPUS.

NOVEMBER 2011

3

TITLE PAGE

THE ANALYSIS OF VALUE ADDED TAX AND ITS IMPACT


BEING DISSERTATION REPORT SUBMITTED IN PARTIAL

FULFILMENT OF THE REQUIREMENT FOR THE AWARD

OF MASTERS DEGREE IN BUSINESS ADMINISTRATION.

(M.B.A DEGREE IN ACCOUNTANCY)

TO

DEPARTMENT OF ACCOUNTANCY

FACULTY OF BUSINESS ADMINISTRATION

UNIVERSITY OF NIGERIA

ENUGU CAMPUS.

BY


PG/ MBA/09/54303

NOVEMBER 2011

4

APPROVAL PAGE

This is to certify that IGWEONYIA OBIAGELI VIRGINIA a

post graduate student in the department of Accountancy

and with registration number PG/MBA/09/54303 has

satisfactorily completed the requirement for the project

research in partial fulfillment for the award of Masters of

Business Administration degree (MBA) in Accountancy.

…………………………… ………………………….. PROF (MRS) UCHE.MODUM DR.O. UGWUOKE

Project Supervisor Head of Department

……………………………. ………………………….

Date Date

5

DECLARATION

I IGWEONYIA OBIAGELI VIRGINIA , a post graduate student

in the department of accountancy with registration number

(PG/MBA/09/54303), Hereby declare that this project work

is written by me and that the work embodied in this project is

original and has not been submitted in part or full for any

other degree of this nature or any other university.

………………………………….

IGWEONYIA OBIAGELI .V.

PG/MBA/09/54303 RESEARCHER

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DEDICATION

This work is dedicated to the almighty God, for the strength

wisdom and understanding he has given to me through all

those difficult times and also to MY FAMILY, For their

immense support, assistance and encouragement.

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ACKNOWLEDGMENT

My profound gratitude goes to my supervisor

PROF.U.MODUM whose criticism, corrections, suggestions,

guidance and advice contributed immensely in making this

project work a reality.

I am also grateful to my head of department, Dr. O.

Ugwuoke for his advice and encouragement. I also express

my gratitude to all my lecturers -Mr. J. N. Modebe, Prof. J.

O.Onah,Dr.(Mrs.) Regina Okafor, Mrs. Ofoegbu, Mr. O.

Agaolu, Dr (Mrs) Onyeanu and the rest of them in the

department of Accountancy who had at one time or the

other instilled in me a valuable knowledge in this field of

study.

This thesis could not have come to reality without the

encouragement and assistance given to me by my cousins,

friends, brothers and sisters. My special thanks goes to my

husband-Mr. Igweonyia .B.N. and my children for their

support and encouragement throughout the period of my

studies and also Mr paul Aduba.I must also appreciate the

special prayers from my mother –Mrs. Okafor Regina. Finally

I thank my friends and Mrs. Akaniro Ngozi for her support

and other colleagues in the field of study, who were not

mentioned above and to several authors from whose books

and works I have abstract information. In owe immense debt

of gratitude.

IGWEONYIA.O.V.

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ABSTRACT

The Purpose of this study is to investigate the impact of VAT on the Nigeria economy as it relates to how it can improve

government revenue and throws more light in its contribution to the economic growth and development of Nigeria. In

addition to the oral interview and questionnaires distributed, was a review of study of literature relating to the impact,

administration and collection of VAT in Nigeria. Simple percentages, bar chart, pie chart, and chi-square

X2 = (O-E)2

E Were used for data analysis on which purposive sampling

technique was adopted. The findings shows that A,VAT has economic impact in consumption pattern in Nigeria

B, VAT has positive impact on the economy of Nigeria. C, The payment of VAT has improved the prospects of

businesses, organizations and industries in Nigeria and the study strongly recommends that:

i. There should be functional VAT offices in every council area to coordinate a vigorous campaign to educate

people and seek their cooperation. ii. The above will no doubt erode the negative attitude that

some of the taxpayers have developed towards VAT. iii. Government should make adequate provision, for

retrieving the VAT proceeds from companies and other collection agents.

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TABLE OF CONTENTS

Title page - - - - - i

Approval Page - - - - - ii

Declaration - - - - - iii

Dedication - - - - - iii

Acknowledgment - - - - - iv

Abstract - - - - - vi

Table of contents - - - - - vii

List of tables - - - - - xi

List of figures - - - - - xiii

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study: - - - - - 1

1.2 Statement of the Problem - - - - - 4

1.3 Objectives of the Study - - - - - 6

1.4 Research Question - - - - - 7

1.5 Research Hypotheses - - - - - 7

1.6 Scope of the Study - - - - - 8

1.7 Significance of the Study - - - - - 8

1.8 Limitation of the Study - - - - - 9

1.9 Definition of Terms - - - - - 11

References

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CHAPTER TWO

OVERVIEW OF LITERATURE REVIEW

2.1 Introduction - - - - - 14

2.2 Definition and Purpose of Taxation - - - 15

2.2.1. Purpose of Taxation - - - - - 15

2.3 Attributes of a Good Tax System - - - 16

2.4 Impact, Incidence and Taxable Capacity - - 18

2.5 Types of Tax System - - - - - 19

2. 6 Kind of Taxes - - - - - 20

2.7 Value Added Tax in Nigeria - - - - - 22

2.8 Conceptual Analysis of Value Added Tax (VAT) - 24

2.9 Aims of Vat in Nigeria - - - - - 27

2.10 List of Some African Countries with their Rate of

Value Added Tax. - - - - - 28

2.11. The Impact of Value Added Tax in Nigeria - - 30

2.12 Administration of Vat in Nigeria - - - 32

2.13 Accounting for Vat - - - - - 34

2.14 Vat Calculation in Nigeria - - - - - 35

2.15 Remittance of VAT - - - - - 36

2.16 Taxable Goods and Services and Rate - - 37

2.16.1 Goods and Services Exempted by Vat - - 40

2.17 Offences and Penalties of Registered Person - 40

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2.18 Advantages of Vat in Nigeria - - - 42

2.19 Disadvantages of Vat in Nigeria - - - 43

References

CHAPTER THREE

RESEARCH METHODOLOGY


3.2 Research Design - - - - - 47

3.3 Sampling Techniques - - - - - 48

3.4 Sample Size/Population - - - - - 48

3.5 Data Collection Techniques - - - - 50

3.6 Data Analysis Techniques - - - - - 50

3.7 Validity and Reliability Test of Instrument - 51

References

CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND

INTERPRETATION


4.2 Data Analysis - - - - - 54

4.2.1 Response Rate - - - - - 54

4.3 Test of Hypothesis - - - - - 66

4.3.1 Test of Hypothesis (Ho1) - - - - - 67

4.3.2 Test of Hypothesis (H02) - - - - - 69

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References

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSIONS AND

RECOMMENDATION


5.2 Summary of Findings - - - - - 78

5.3 Conclusion - - - - - 80

5.4 Recommendations - - - - - 81

Bibliography

Appendix A: Questionnaire

Appendix B: Oral Interview Guide

Appendix C: Manufacturing firm visited

Appendix D: List of service providers visited

Appendix E: List of wholesalers visited

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LIST OF TABLES

Table 2.10: African Countries with their VAT Ratio 29

Table 2.15.1: Taxable goods and services and rates - 38

Table 4.2.1 Sampled Questionnaires and Response

Rate - - - 55

Table 4.2.2 Demographic Data of Respondents - 56

Table 4.2.3: Types of Business Activities - 57

Table 4.2.4: Classification of Vat - - - - 58

Table 4.2.5: The Impact of Vat in Nigeria - - 59

Table 4.2.6: Vat Collection in Nigeria - - 60

Table 4.2.7: Vat Rate in Nigeria -- - - - 60

Table 4.2.8: Medium of Education of Vat - - - 61

Table 4.2.9: Motivation to Vat Staff -- - - 63

Table 4.2.10: Impact of Vat on Consumption Pattern 63

Table 4.2.11: Effect of Imposition of Vat on Businesses

and Industries. - - - - 64

Table 4.2.12: Challenges to Vat Implementation and

Administration - - - - - 65

Table 4.2.13: Impact of VAT on the Nigeria

Economy. - - - - 65

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Table 4.3.1: Calculation of Chi-Square for Hypothesis

One (Ho1) - - - - 67

Two (Ho2) - - - - - 70

Table 4.3.3. Calculating Chi-Square for Hypothesis

Three (H03) - - - - - 73

Table 4.3.4. Calculating Chi-Square for Hypothesis

Three (H04) - - - - - 75

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LIST OF FIGURES

Figure 4.2.1: Types of Business Activity - - - 57

Figure 4.2.2: Bar Chart (Classification of Vat) - - - 58

Figure 4.2.3 Pie Chart (Medium of Education on Vat) - - 62

Figure 4.2.4: Pie Chart - - - - 69 -

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CHAPTER ONE

INTRODUCTION

1.1 Background of the study:

Value Added Tax (VAT) in Nigeria is a Federal Government

tax, which is administered using the existing machinery of

the Federal Inland Revenue Services (FIRS).

VAT has a directorate within the frame work of the Federal

Inland Revenue Services (FIRS) with the head office in

Abuja. It has a network of zonal and local offices throughout

the federation. The Directorate of the tax is headed by a

director who is assisted by two deputy directors. The Zonal

Coordinator of the Federal Inland Revenue Services (FIRS) at

Lagos, Ibadan, Enugu, Kaduna and Jos also coordinates the

activities of local VAT offices within their areas and are

responsible to the VAT Directors in Abuja for all Value

Added Tax (VAT) related matters.

VAT as a form of tax was introduced in Nigeria with effect

from 1st January 1994 based on the report of the study

group set up in 1991 by government to review the system of

indirect tax in Nigeria.

Before the introduction of VAT in Nigerian economy, the

Federal Government has been working relentlessly on how

to revamp the Nigeria economy. To this effect, a lot of

economic measures have been introduced. Among the

economic measures introduced included the Second-Tier

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Foreign Exchange Market (SFEM), Structural Adjustment

Programme (SAP), and Foreign Exchange Market (FEM) etc.

All these efforts at revamping the economy were to no avail

as the economy seems to be an ailing child that has defied

all economic therapy or fiscal measures. Prompted by its

avowed position to revamp the Nigerian economy at

whatever cost, the Federal Military Government under the

leadership of General Sani Abacha introduced a fiscal policy,

the Value Added Tax (VAT) in January 1994.

VAT is a consumption tax at each stage of the consumption

chain and is borne by final consumer. It requires a taxable

person upon registering with the Federal Board of Inland

Revenue to charge and collect VAT at a flat rate of 5% on all

vatable goods and services.

Where the supply is not subject to VAT, the VAT liability will

either be Zero-rated or exempted. Zero-rated goods and

supplies are all export goods and supplies. Supplies that are

zero-rated are still taxable but no actual tax is payable to

the government. The important difference between Zero-

rated and exempt items is that any input VAT relating to

Zero-rated supplies is recoverable, whereas that relating to

exempt supplies are not recoverable.

The registration of Value Added Tax (VAT) is to cover all the

business activities of the vatable persons. Therefore all

domestic manufactures, wholesalers, distributors, importers

and suppliers of goods and services in Nigeria are expected

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to register for VAT within six months after the

commencement of the decree or six months from the

commencement of business, which ever is earlier.

A vatable person is one who trade in vatable goods and

services for a consideration. Every vatable person has the

obligation to register for Value Added Tax (VAT) payment.

Professionals like lawyers, accountants, Engineers etc who

provide professional services to their clients are require to

register. There is therefore no thresh-hold for registration.

VAT paid by a business on purchases is known as input tax,

which is recovered from VAT charges on company sales

known as output tax. If output exceeds input in any

particular month, the excess is remitted to the Federal

Board of Inland Revenue (FBIR) but where input exceeds

output, the tax payer is entitled to a refund of excess from

Federal Board of Inland Revenue (FBIR) though in practice

this is not always possible.

A tax payer however has the option of recovering excess

input from excess output of a subsequent period.

It should be stated at this point that recoverable input is

limited to Value Added Tax (VAT) on goods imported directly

for resale and goods that form the stock-in trade sued for

the direct production of any new product on which the

output VAT is charged.

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Vat in Nigeria were created as replacement or substitution

for the sales taxes that were in operation before. They were

imposed on all goods that were manufactured in the country

as well as goods that had been made outside the country

and were selling there.

The impressive performance of VAT within the first

government fiscal policies such as:

Scraping of some form of excise duty;

The reduction of the marginal rate of personal income

tax to 25% and lowest tax bracket from 10 to 5;

The reduction of company income tax rate to 30 and;

The reduction of the rate of capital tax from 20% to

10%.

Following these, Value Added Tax (VAT) seems to be the best

among other types of taxes. It is against this background

that we are going to analyse VAT and to see the impact it

has on the nation‘s economy.

1.2 STATEMENT OF THE PROBLEM

The significant impact of VAT or the role played by Value

added Tax in the development of the nation cannot be

overemphasized. Revenue is raised by the government

through taxation for the development of the nation‘s project.

Vat was introduced as a revenue mobilization strategy to

cover up the deficiencies experienced with the former sales

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tax because of its progressive nature. Government ability to

adequately and effectively retrieve the proceeds from

companies and other agents of collection remains a problem.

It does not appear as if there is adequate machinery for

effectively monitoring of the remittance of the tax withheld to

the relevant tax authorities, this means that the federal

inland revenue , the body charged with the administration

and implementation of Vat lacks the logistic support , this

invariably will give room for tax evasion and avoidance.

Secondly, the dishonest practice by some tax officials also

posed a serious threat to effective tax administration in

Nigeria, especially when such practices are capable of

having demoralizing effects on the honest tax payers.

Consumers will still want to low how much they are paying

as Vat as most of these taxes are not duly reflected on their

invoice. it is generally believed that vat is another way of

reflecting economic hardship on the consumer to the

advantages of the manufacturers and companies. It could be

seen as an excuse to raise prices of goods and services

arbitrary. For instance, landlords are now charging vat on

house rents, some hotels are charging vat on their services

without remitting same to the appropriate authorities. These

are contrary to the regulation governing the vat system.

The uncommon nature of this tax system, has resulted in

unaware of its existence by majority with resultant effects of

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low credibility by the government, this has made people to

scorn the payment.

Lack of trained personnel and logistic support from the

government and FIRS has contributed immensely to poor vat

administration and implementation which invariably has

resulted in reduction in revenue generation from vat.

It is against these backdrops, that this research seeks to ask

certain question to determine if the introduction of VAT is a

worthwhile venture or policy.

Has Value added tax any impact on government

revenue in Nigeria?,

Does VAT have any economic on consumption pattern

in Nigeria?

What are the problems confronting the effective

implementation and administration of VAT in Nigeria?

And to what extent has VAT impacted on the business

organization, firms and industries in Nigeria?.

1.3 OBJECTIVES OF THE STUDY

The main objective of the study is to assess the implication

of value Added Tax in revenue generation of Nigeria.

Specifically, the study attempts

1. To determine the economic impact of value - Added tax

on the consumption patterns of Nigeria.

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2. To assess the impact of value added tax on the Nigeria

Economy.

3. To examine the impact of value added tax on the

prospective businesses, firms, organizations and

industries in Nigeria

4. To identity the potential problems confronting the

implementation and administration of Vat in Nigeria.

1.4 RESEARCH QUESTION

As a follow up to the objectives of this study are the,

following research questions

1. To what extent does value added tax impacted on the

consumption patterns of Nigeria?

2. Does Value Added Tax (VAT) have any positive impact

on the Nigeria Economy?

3. To what extent has VAT improved the performance of

businesses, organizations and industries in Nigeria?

4. Are there problems confronting the implementation

and administration of VAT in Nigeria?

1.5 RESEARCH HYPOTHESES

The following generated hypothesis will be examined

Ho1: Value Added Tax (VAT) has no economic impact on the

consumption patterns of Nigeria

Ho2: Value Added Tax (VAT) does not have positive impact

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on the Nigeria Economy.

Ho3: Payment of (VAT) has not improved the prospects of

business, organizations and industries in Nigeria.

Ho4: There are no challenges confronting the implementation

and administration of VAT in Nigeria.

1.6 SCOPE OF THE STUDY

This study covers the economy as a whole (The Federal,

State and Local Government) but with particular reference

to the Federal Board of Inland Revenue (FIBRS) which is the

relevant tax authority for the value added tax in Nigeria.

The data collection was restricted to the VAT office, business

registered and non registered, consumers and wholesalers

within Enugu metropolis, hence the findings of the study

was generalized to cover VAT activities within the metropolis

and Enugu VAT office at No. 7 Ridge way Road.

1.7 SIGNIFICANCE OF THE STUDY

This research work will be an invaluable source of literature

for researchers, student, marketing practitioners,

accountants, bankers, companies, government agencies and

related field who might be interest in knowing much about

the concept of ―VAT.

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It‘s general contribution to economic development of Nigeria

were mentioned. It‘s advantages and disadvantages, types of

taxes, the origin of VAT, its application, impact and

administration were thoroughly analyzed which will be an

indispensable material to the above mentioned beneficiaries.

It will also help the government in her policy formulation to

suggest alternative strategies that can aid effective

administration and monitoring of the VAT process and

procedures.

The list of vatable goods and services will also be mentioned

in subsequent chapter together with the countries that had

practiced this system of taxation with the date of adoption.

All these will contribute immensely to the knowledge

previously had by some of the beneficiaries mentioned

above.

1.8 LIMITATION OF THE STUDY

The researcher encountered a lot of hindrance and problems

in the course of carrying out this research work. Among the

major problems is the difficulties in getting and gathering

information and others which include the following:

1. FINANCE

Due to the nature of office and business within the scope,

the researcher spends a lot of money on visiting, traveling

25

from one location to another, from one office to the other

and even had to repeat a visit more than three times to seek

for information, all these involves money considering the

financial constraint of the researcher and limited resources

available to her.

2. SOURCES OF INFORMATION

Many registered and non registered business owners were

reluctant to give out or provide information about the

research, since they believe that tax payment is something

very confidential and therefore could not open up to the

researcher.

3. INADEQUATE RECORD KEEPING

Some of the respondents visited were unable to present

complete and comprehensive records of their business .while

some were not keeping proper records of their business

activities and as such could not give adequate and correct

information on the effect of vat on their businesses rippling

on the economy of Nigeria.

4. TIME:

Time constraint has been another vital limitation and

obstacle towards effective realization of the main objectives

of this study. Time was really not on my side since I have to

combine the little time left with my academic work and

preparation.

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1.9 DEFINITION OF TERMS

It is the researchers intention that this project work will be

read and understood by all that may be interested in it

either officially or ordinary. Hence, the need for highlighting

the important terminologies used cannot be over-

emphasized.

The Decree 102, which established the Value Added Tax

(VAT) came into being in the year 1993. The Decree spelt out

the following terms unless the context otherwise requires. As

far as this project is concerned, the meaning is just as they

are in Decree.

“Vatable Person (Registered Person)”: This refers to a

manufacturer, wholesaler, an importer and a supplier of

taxable goods and services. As a taxable person, he is a

person registered under section 8 of the Decree.

“Authorized Officer”: This means an officer who has been

authorized by the board of Inland Revenue to perform any

function under or in pursuance of this Decree.

“Board”: This is the Federal board of Inland Revenue.

“Chairman”: This means the chairman of the Federal Board

of Inland Revenue.

“Company”: Company here as defined under the

Companies and Allied Matter Decree 1990 and a cooperate

body that may be formed under any other written law and

27

include any association, whether incorporate in or outside

the country (Nigeria)

“Importer”: This means a person who imports taxable

goods.

“Invoice” This means any document issued as an evidence

of demand for payment.

“Manufacturer”: Means any person who engages in the

manufacturing of goods. It also includes a person who has

manufactured for him or on his behalf by other goods made

to his specification or design.

“Manufacturing”: Means the process by which a commodity

is finally produced including assembling, packaging,

bottling, repackaging, mixing, blending, grinding, cutting,

bending, twisting and pining any other similar activity.

“Owner”: Means in respect of any goods, aircrafts, vessel,

vehicles, plant or other goods, a person other than an officer

acting officially, who hold out himself to be the owner,

manufacturer agent or person in possession of or

beneficially interested in, or having control of or power of

disposition over goods, aircraft, vehicle, plant or other goods.

“Supply of Services”: Means any services provided for

consideration.

“Tax Period”: Means one calendar month commencing from

beginning of the month to the end of that month etc.

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REFRENCES

FGN (1993) Value added tax (VAT) Decree No102. Federal

Ministry of Information and culture.

Ikewumi (1994) Value added Tax, the fact as a positive Tax.

National concord.

Aguolu.o (1999) Taxation and Tax management in Nigeria,

Enugu Meridam Press associates.

Okpe I. (2oo1) Guide to Nigerian company Taxation, Chiezugo

Ventures, Enugu.

Baridam. D .M. (2001) Research methods in administrative

science, Portharcourt Shev Books Association

29

CHAPTER TWO

OVERVIEW OF LITERATURE REVIEW

2.1 Introduction

Although, very few literature exist and were written on the

subject of value added tax in less developing countries by

different groups of scholars, academicians, tax experts and

professionals, commissioners by international monetary

funds (IMF) world bank, organization of petroleum exporting

countries (OPEC). Extensive studies have nevertheless, been

done on the alternation prominence of indirect tax on

developing countries in general and Nigeria in particular.

The core function of taxation as revenue generating tool in

developing countries has been studied by eminent scholars.

Several developing countries have since been given

increasing attention to VAT as a means of rationalizing the

system of taxation. Among them are Nigeria, Senegal, cote

D‘Ivoire, morocco, Tunisia etc. VAT is levied on almost all

business transactions in over 130 countries around the

world because it is intended to impose a neutral effect on

business.

The income of government is mainly from taxes, rates, fees

and fines, special assessments and revenue from

government owned enterprises and mineral resources. The

bulk of government income in developing countries like

30

Nigeria is principally derived from indirect taxation, while in

the developed countries like USA, the bulk of government

revenue is rather derived from direct taxation. Borrowing

becomes necessary when income from regular sources is not

sufficient to take care of expenditures. The money borrowed

must be repaid with some interest out of regular current

income or by additional borrowing. But the practice of

borrowing cannot be regular feature in Government

administration, hence the need for revenue collection

agencies in developing countries to maximize revenue

collection.

2.2 Definition and purpose of Taxation

Taxation is often defined as ―the levying of compulsory

contributions by public authorities, having the jurisdiction

to defray the cost of their activities‖. The money collected is

used for the common good of the citizenry, for the

production of certain services, which are considered to be

more efficiently provided by the state rather than by

individuals. E.g. maintenance of law and order at home, and

defense against external enemies.

2.2.1. Purpose of Taxation

The definition of taxation given above underlines the main

purpose of taxation. That is to raise revenue to defray the

cost of services provided by the state. Other purposes of

31

taxation are to reduce inequalities arising from the

distribution of wealth, to restrain certain types of

consumption, to protect home industries and to control

certain aspects of the country‘s economy. E.g. balance of

payment, employment, savings, investment and

productivity. In addition, to the above, other purpose of

taxation could be summarized as follows.

1. Increased effective productivity of the nation.

2. Increase in the quantum of revenue collection.

3. Improvement in services of the government

4. Improve employment at all industry verticals

5. Induction of modern technology into the system

6. Rationalization of terms and conditions of the economic

system.

7. Rationalization of employment terms and conditions.

2.3 Attributes of a Good Tax System

Adam Smith (1778) one time British economist annunciated

four attributes which he called cannons of taxation (in his

book The wealth of Nations‖). These principles are very

significant and they are as true today as in his days. They

are:

Equity: The tax system should be fair to both tax

officers and tax payers. The subject of every state

ought to contribute towards the support of the

government as nearly as possible in proportion to their

32

respective abilities. Ability to pay refers to the economic

resources under a person‘s control.

Certainty: The tax authorities should make all tax

systems and mode of administration very clear to the

tax payer. In other words, tax payers should be made

aware about the tax system being used. They should

also be aware about the obligation under the system.

Similarly, the tax payer should be aware of the benefit

to be derived. Additionally, the time of payment ,the

manner of payment, the amount to be paid, the place

of payment as well as all rights and obligations under

the tax laws must be known to both the tax

administrator and the tax payer, the tax system should

be made very convenient to the tax payer.

Convenience: Every tax ought to be levied at the time

or in manner in which it is most likely to be convenient

for the contributor to pay it. The method of collecting

the tax should be such that the majority of tax payers

would understand and routinely comply. The collection

method should not b overly intrude on tax payers

privacy but should offer minimal opportunity for non-

compliance.

Economy: This implies that the tax revenue should

always exceed the cost to be incurred in generating the

tax or its administration. Every tax ought to be so

contrived as both to take and keep out of the pockets of

33

the people as little as possible over and above what it

brings into the consolidated fund. Apart from the above

mentioned cannons of taxation, these are other

attributes that later come up to support those

annunciated by Adam Smith. They are.

Simplicity: A major component of economic efficiency

is the tax structures simplicity, that is what it cost

taxpayer to comply with tax policy..

Elasticity: This means that a tax system should

respond automatically to changes in the tax payer‘s

wealth, population and other important variables.

Productivity: This principle emphasizes that the tax

system ought to produce a high met yield of revenue

but not so high as to damage the source of that

revenue.

2.4 Impact, Incidence and Taxable Capacity

i The impact of tax. This refers to the pinch of payment

and this is on the person who pays the tax initially.

It is upon those who bear the first responsibilities of

paying it to the tax authorities.

ii The incidence of tax: This means the ultimate

economic burden represented by the tax. It is the

money burden which is on the person who finally

pays the tax and who is unable to pass it on to

34

another The terms indicate the ―final resting place‖ of the

tax.

Iii Taxable capacity: This is a country‘s limit or

capacity to accept and absorb taxation and this is

determined to a large extent by numerous factors

which includes.

The country‘s real wealth

The attitude of the population to taxation in general

The type of taxes levied

The possibilities of tax evasion

The level beyond which any increase in taxation

might lead to a reduction in national income. (e.g.

the effect of tax incentives, wage demands, price

increases).

2.5 Types of Tax System

We have three major systems of taxation, these are:

1. Progressive tax system: It is a system of taxation

whereby those with higher income pay more, whereas

lower income earners pay less tax. In Nigeria, PAYE

uses progressive tax system because the graduated tax

rate reflects.

2. Regressive Tax System: Under this system, the higher

income earner pays proportionately lower whilst the

lower Income earner‘s pays higher. Regressive tax

systems are practiced in few developed countries.

35

3. Proportional Tax System: It is a tax system whereby all

persons pay a flat rate of tax irrespective of the size of

your income. Your tax payment is proportional to your

income.

2.6 Kind of Taxes

These are many classifications by different authors as what

should be the major kind of taxes. The general acceptable

classification is

a. Direct Tax

b. Indirect Tax

a. Direct Tax: This is a tax extracted directly from the

person who will bear the burden of it. It is tax directly

collected from the income of the tax payer. It includes, poll

tax, a general property tax income tax. The administering

authority of this kind of tax is the internal revenue services

or (Board of internal revenue).

Advantages of direct taxation

Incidence and yield are easy to determine

The tax payer knows with certainty what he is expected

to pay

Yield increase automatically as wealth and population

increases.

Direct taxes are in general progressive

Disadvantages of direct taxation

The Cost of administration is very high

36

The effect on incentive, enterprise and savings in the

case of those with large incomes may be considerable.

b. Indirect Tax

This is the tax levied indirectly .it is levied on commodities

before they reach the final consumer, but ultimately paid by

the consumer as part of the market price. Here the impact

and incidence are of different persons. They are called

indirect because the administering authorities which levy

the taxes on goods and services do not collect the taxes from

the consumer but do so indirectly through importer,

manufactures or other intermediaries. The shifting or

passing on of the liability is effected by loading the tax

element on the selling price of the commodities sold to the

next person in the commercial chain until it is finally borne

by the consumer.

Advantages a Indirect Taxation

a. Payment and collection of the tax, are easy and

convenient

b. In general, its yield is elastic

c. Evasion is very difficult

d. Restriction of harmful consumption,

Disadvantages of indirect taxation

a. They are often regressive

b. Revenue may be uncertain where the demand for the

taxed good is elastic

37

c. Incidence is not easy to determine

d. They are not always equitable.

The above mentioned systems of taxation cannot be

complete without references to the popular tax theory know

as ―The faculty theory of Taxation‖.

This faculty theory of taxation seeks to establish the

principle that tax payers should contribute towards the

revenue of the state in some direct relation to their capacity

to do so. The theory is simply that the rich should be taxed

more heavily than the poor because their ability to pay is

grater. For example, Persons whose incomes are up to N

10,000 a year might pay N30000which militates against the

fundamental rule of taxation that is ―Equity‖.

2.7 Value Added Tax in Nigeria

In Nigeria, the idea of VAT started with the acceptance of

recommendation of the study group on indirect taxation in

November 1991, set up by the federal government. The

federal government was however, not satisfied with revenue

yield from the sales tax whose base is regarded as norms

and which covers only nine categories of goods plus sales

and services in registered hotels, motels, and similar

establishment. It is felt that the narrow base of the

consumption negates the fundamental principles of

consumption tax; which by nature is expected to cut across

consumptions of goods and services. Value Added Tax, in

38

contrary has a broader base and includes, most

professionals services and banking transactions that are

high profit generating sectors, only locally manufactured

goods were targeted by the sales tax Decree of 1986;

although this might not have been the intention of the law.

VAT is neutral in this regard. Under VAT a considerable part

of the tax to be realized is from imported goods. This means

that under VAT, locality manufactured goods will not be

placed at a disadvantages relative to import. Since VAT, is

based on the general consumption behavior of the people.

The expected high yield from it will boast the fortunes of the

state government with minimum resistance from the tax

payers of the tax (Ola, 1999).

The decision to accept the recommendation of the study

group set up by the federal government on indirect taxation

in November 1991 was made public in the budget speech of

the Head of State. This resulted in setting up the modified

Value Added Tax (MVAT) committee on 1st June 19992 as

recommended by the study group. The recommendation of

the committee that VAT should be administered by an

independent commission rather than the federal inland

revenue services, which was the body already charged with

the responsibility of administering most other taxes in

Nigeria was rejected by the federal government. This led to

the introduction of VAT in Nigeria, through Decree 102 of

1993 which marks the phasing out for the sales tax decree

39

No 7 of 1986. The Decree took effect from 1st December,

1993 but by administrative arrangement, invoicing for tax

purposes did not commence until 15t January, 1994: Value

Added Tax is a consumption tax on economic operations

which include imported goods and services. Vat is computed

at a flat rate of 5% of price of goods and services and at zero

rates for export (Seyi, 1993).

2.8 Conceptual analysis of Value Added Tax (VAT)

The concept VAT (Value-Added Tax) has been given different

definitions by different authors and writers. According to

Nworji as Quoted in (Chima 1996) Value-Added Tax is

defined as a ―consumption tax whereby the consumer is

made to bear the tax burden. The tax burden is passed from

the manufacturer to wholesaler to retailer and finally to the

consumer who has been designed to bear it without

complaints‖ from the above, it therefore means that the VAT

can only be avoided by the consumer if he avoids buying any

of the vat able goods or services, that is an item on which

VAT is paid. Similarly, a vatable person is one who trades in

vatable goods and services for a consideration.

According to IMF survey, VAT can be defined ―as an indirect

tax imposed on each sale beginning at the start of the

production and distribution cycle and culminating in the

sales to the consumer. It went further to create the

40

impression that it is the consumer that absorbs the VAT as

part of the sales prices, showing that VAT essentially is a

consumption tax collected, throughout the production

chain.

VAT is a more broadly based tax on consumer expenditure

which with a few exception, is levied in all goods and

services at the rate which vary from one country to another.

Okpe (2000) in his own definition, defined ―VAT‖ as a multi

stage tax imposed on the value added to goods and services

as they proceed through various stages of production and

distribution and to services as they are rendered, which is

eventually borne by the final consumer but collected at each

stage of production and distribution chain. This definition,

brings out the three characteristics of value added tax,

which are

1. VAT is a consumer tax

2. VAT incidence is on the final consumer

3. VAT is a multi stage tax.

Jennings (1986( also describe VAT as a tax levied at each

stage which supplies changes hands. In the case of

manufactured items, this could be at the primary producer,

manufacturer, wholesaler and retailer stages. It is ultimately

borne by the consumer.

41

From the above definitions, of VAT by Jennings, he suggests

that there are intermediaries through which a produced

goods or services must pass before getting to the financial

consumer. At each stage the goods pass from one person to

another, a value is added to it. It is this value that is being

taxed and borne at last by the final consumer. The above

mentioned, suggests that the value of the goods and services

to the final consumer presents the aggregate of all the values

added by successive traders or intermediaries in the chain.

Since each trader pays only the VAT attributable to the

value he added at his stage the final tax for any given final

value is same, irrespective of the number of stages in the

process or chain.

The operation of VAT can be viewed as a typical chain of

transactions where goods produce by a manufacturer are

sold to a wholesaler who sells to a retailer who in turn sells

to a consumer. Everybody in the chain except the consumer

gets a refund for the impute VAT he paid on his purchases.

Since the consumer is not entitled to any refund in respect

of the VAT included in the price he paid to the retailer, it is

at this stage that the tax can be said to form part of the net

Cost of the goods purchased by him. (Ezejelue 2001).

42

2.9 Aims of VAT in Nigeria

Oyegbile (1996) observed that the Value Added Tax was

introduced in Nigeria with several reasons, among which are

the following.

To broaden the nations revenue base thereby making it

less dependent on oil export

To broaden the tax base with an equal burden on

imported and domestically produced goods and

services. The old sales tax places locally manufactured

good at disadvantage relative to imported ones.

It would diminish the incidence of taxation towards

expenditure rather than income

Through Value Added Tax, it was believed that the

harmonization of our tax system would be achieved

especially with these flat rates of 5% throughout the

nation.

It makes it easier to claim credit for input tax, since a

registered person must hold tax invoice.

It makes it easier for the collection of tax collected on

behalf of the federal government by businesses or

organization, which have registered with the federal

inland revenue Services (FIRS, VAT Directorate) for

VAT purposes

The introduction of VAT has bought fairness to all tax

payers, because a number of goods and services which

43

were not previously covered by the sales taxes were

brought together under the VAT regime.

To under the base of the tax system in the country,

because VAT is the only Tax impose on a wide range of

goods and services without undue attention being

given to the place of manufacturer of item (local or

imported) or the peculiar nature of the commodity.

(Luxury and harmful products).

To help the common people, traders industrialists and

also the government. It is indeed a move towards

efficiency; healthy competition and farmers in the tax

system.

2.10 List of Some African Countries with their rate of

Value Added Tax.

The following is the list of the African countries of the

world were VAT systems are in place, together with their

dates of introduction and the VAT rates at introduction.

44

Table 2.10: African Countries within their VAT Ratio

Country Date

introduced State levied Tax rate%

Algeria 1992 Retail 7,13,21,20

Benin

Republic 1991 Wholesale 18

Cote-d‘ivore 1960 Wholesale 5,11,25,35

guinea 1960 Retail 13,6

Kenya 1960 Retail 5,18,30,50,

75

Madagascar 1960 Retail 15

Malawi 1989 Retail 10,17,55,85

Mali 1991 Wholesale 10,5,

Mauritius 1983 Retail 5,

Morocco 1986 Retail 7, 14,19

Niger 1986 Retail 10,17,24,

Senegal 1961-1980 Retail 7,20,30,34

South Africa 1991 Retail 14

Togo 1984 Retail -

Tanzania Mid 1994 Retail -

Nigeria 1994 Wholesales 5

Tunisia 1988 Manufacturing 1,17,29

Source: IMF reports.

45

From the above table, It shows that most of the African

countries introduced VAT system of taxation earlier than

others, while Nigeria and Tanzania were among the

countries that adopted it lately.

2.1 1.The Impact of value added tax in Nigeria:

The introduction of VAT (Value Added Tax) in the countries

tax system has recorded much positive impact. Though, in

the pursuance of any line of Action, whichever method that

is adopted cannot be entirely without merit or demerit. This

observation holds equally for the adoption of VAT in our

economic body polity. There are advantages that go with it,

but there are some arguments against the adoption of VAT

in Nigeria.

According to Daily times (1996), the value added tax (VAT)

which is a consumer based tax has assumed a high profile

since the government introduced it in 1994 to replace the

former sales tax which was in operation then. The value

added tax generated as estimated sum of N 13.677 Billion in

the first half of 1994 about 24 percent above the pro rata

revenue of Nil billion projected revenue for the period. The

paper also, added that the figure obtained from the federal

Inland Revenue services (FIRS), showed that out of the total

collection, over N7.791 billion was realized from VAT on

46

import while non-import for the period fetched N5.886

billion.

Monthly collections showed that the highest yield of N2 .914

billion was recorded in May, while the lowers below the

estimated monthly yield was realized in February, the month

of January yield 2.3 billion, March 2.255 billion and June,

2.186 billion.

The Federal Government had estimated a revenue of N22

billion from VAT for 1996, compared to over N19 billion

colleted in 1995. The government recorded a development

that encouraged the Federal Government to reduce personal

tax relief in 1995, by the end of 1995, the new tax scheme

shoot up its contribution to the revenue pool of the

government to the tune of N20.26 billion.

Consequently, government has announced its intention to

shift its focus from income tax to the tax consumption which

he claim is less prone to tax evasion and it is progressive in

nature. The government earned about N7.0 1 billion from

VAT in the first three months of 1996.

Naiyeju (2000) also assert that there are obvious reasons

why the effective administration of the value added tax merit

nothing but a national celebration in Nigeria.

Alheri (1995) confirmed this by stating that VAT has proved

to be a realistic economic policy in spite of public outcry

against the tax regime at its inception. In 1994, the federal

budget stipulated that VAT must realize an estimated

47

revenue of N6 billion while international financial

organizations had their estimate at about N4 billion, but

surprisingly, VAT met and exceeded the budget in 1994

budget estimate by over N2 1 billion, raising a total of N36

billion in that year.

Alheri, also added that 589 local governments in Nigeria in

1994 shared VAT revenue of N6 1 million while federal

capital territory FCT -received N317 million revenue in 1994

and 1995 respectively. Finally, VAT administrating in Nigeria

has contributed to the Universal perception of tax as a

dynamic substance. Part of the changes of VAT policy in

1996 was that payment of income tax was changed to be

made through the bank. Selected banks were appointed to

receive VAT proceeds from where they will be transferred to

Central Bank of Nigeria at specified interval; (Ani 1996). The

triumph of VAT in Nigeria is the triumph of reasons and

expertise. It is the triumph of governments‘ determination in

the implementation of a very difficult fiscal policy.

2.12 Administration of VAT in Nigeria

The VAT system in Nigeria is administered by the federal

Inland Revenue services. (VAT directorate). The board is

charged with the function of assessment and collection of

the tax and shall account for all amounts so colleted in

accordance with the provision of the decree. Although, it is

administered and controlled by the federal government using

48

the existing tax machinery of the federal Inland Revenue

services in close co-operation with the Nigeria custom

services and the state Inland Revenue services. The net

proceeds from VAT are shared among the federal, states and

local government in the ratio of 45.35:20. The prospective

VAT payer obtains and completes form 002 and returns

same to the nearest VAT office. Once, registered, the VAT

proceeds are expected on monthly basis to be paid to the

VAT office.

This is done in consonance with the regulation establishing

these bodies that are in charge of VAT in Nigeria.

i. The board of federal Inland Revenue services (The

board of FFBIR).

ii. The Federal Inland Revenue services (FIRS) which

comprises six directors with headquarters at Abuja

being headed by one of the directors.

iii. The technical committees: These committees come into

existence through section 3 of the VAT decree with

major responsibility on advisory capacity.

iv. The VAT directorate, As explained earlier, the whole

administrative machinery of VAT, lies in these

directorate, who works in close co-operations with the

Nigeria customer‘s services and the state inland

revenue services.

49

2.13 Accounting for VAT

VAT, was introduced long ago, and there is need to

emphasis the peculiar aspect in accounting that relates to it.

These are.

The taxable period: This is the period covered by any

particular VAT return. This period is one month in

Nigeria. It has been extended administratively by the

federal Inland Revenue services.

Payment basis: - VAT collected how to be accounted for

and the taxable period in which a payment is made or

received. In accounting for VAT, it is important for

registered person to take note of the following point.

Where a trader pays VAT in respect of goods for resell,

the amount so paid is debited to a VAT account as

receivable, when the goods are later sold, the VAT

collected is grater than the VAT paid, the VAT account

will have a credit balance, which the trader pays to the

VAT directorate.

When a trader is acting as a collecting agent in respect

of goods which he acquired for resale, the VAT should

not be included in the account as expenses. When

renders returns and pays the VAT, to the vat

directorate, the VAT account should be debited and the

cash book credited accordingly. At the end of the

traders accounting period, any VAT not yet paid over to

50

the government should be reflected as a liability in the

balance sheet.

When, a trader suffers VAT which he cannot pass on to

the ultimate consumer, e.g. the trader buyers a vehicle

for his business, the VAT will only increase the cost of

the goods or services to him and should be accounted

for a such.

2.14 VAT Calculation in Nigeria

There are many methods of calculating VAT available to

different countries of the world that have adopted VAT as

their tax system.

According to Okpe (2001), there are three options available

in Nigeria for the calculation of VAT or its computation.

Among these are:

i. Addition method

ii. Subtraction method

iii. Credit method

i. Addition method: This method, involves the

calculation of Value Added Tax, by adding all

payment for untaxed inputs and multiply same by

VAT rate to get VAT payable to the government.

ii. Subtraction method: This method has two available

models to it. It has the European model and

51

Japanese method or model. Under the European

models - the input tax is subtracted from output tax,

VAT = output - input.

iii. Japanese model: Here, the value added tax is

calculated by subtracting the cost of taxed inputs

from sales and multiply by the tax rate to get the tax

liability: in summary, it means Sales - purchases x

tax rate = The tax liability.

iv. Credit method: Under this method, a firm would

multiple - its sales by the tax rate to calculate VAT

collected on sales. Secondly, the firm would credit

VAT paid on inputs against VAT collected on sales

and remit the difference to the government. The firm

would calculate its VAT liability before setting its

prices in order to shift the VAT fully to the

consumer.

2.15 Remittance of VAT

Every vatable person is to remit to the relevant local VAT

office the net VAT payable, which is the excess of the output

tax over the input tax while filling VAT return. Remittances

are supposed to be made together to the VAT returns filed.

The VAT carries a single rate of 5% on vatable goods and

services, zero rates are assumed for export while there are

goods and services exempted from the tax. Within the three

major types of VAT

52

1. The consumption VAT

2. cross product VAT

3. The income VAT

2.16 Taxable goods and services and rate

Vat covers manufactured goods and imports and well as

professional and banking services. Though, the list of

affected goods and services published by FIRS is still subject

to amendment. Table 2.1.1 shows some of the goods and

services and specific rate chargeable.

53

Table 2.16.1: Taxable goods and services and rates

S/N Taxable goods (Rate%)

1. All goods manufactured or assembled in

Nigeria 5

2. All goods imported to Nigeria 5

3. All second hand goods 5

4. Household furniture and equipment 5

5. Petroleum and all petroleum products 5

6. Jewels and jewelries 5

7. Textiles, clothing, carpets and rugs 5

8. Beer, wine, spirit, soft drink and bottled

water 5

9. Performs and cosmetics (including toiletries) 5

10 Cigarette and tobacco 5

11 All vehicles and their spare parts 5

12 All air craft, air craft bodies and their spare parts

5

13 Soaps and detergents 5

14 Mining and minerals 5

15 Office furniture and equipment 5

16 Electrical materials of description 5

17

Such other goods that made to be

determined by the board from time to time as taxable goods

5

54

S/N TAXABLE SERVICES RATE(%)

1 All services rendered by the financial institutions excluding peoples banks and

mortgage institutions

5

2 Accountancy services including any type of

auditing, book keeping or related services 5

3 Legal services including services supplied

there with 5

4 Computer including the provision of bureau facilities, system analysis, design ,

software, site development ,and training

5

5 Supply services by an architect 5

6 Services supplied by brokers 5

7 Services supplied by security companies and enterprises

5

8 Courier services 5

9 Repairs, alterations, processing or any other services provided in connection with the

designated good by designated dealer

5

10 Telecommunication equipment, installment

and maintence services. 5

11

Letting of video tapes or any other audio,

visual recording or hiring , carrying and

rewriting of video tapes and similar services

5

12

Entertainment services including plays ,

performance, crime shows and music

concert, conducted by educational

institutions as part of learning.

5

13 Air travels and company hire 5

55

14

Any other services as may be presented by

the board from time to time as taxable

services.

5

Source: (Firs information circular No. 93040)

2.16.1 Goods and services exempted by VAT

VAT example essentials goods such as all medical and

pharmaceutical products basic food, books and educational

materials, news papers and magazine,baby products,

fertilizers, age culture and veterinary medicine, farming,

transportation equipment while:

Services exempted include:

Medical services, services rendered by community banks,

peoples bank and mortgage institution. All diplomatic items

are exempted as covered by international agreements and

air line tickets for international travel.

2.17 Offences and Penalties of registered person

There are various offences with heavy stiff penalty under the

VAT system. Some of these offences are;

Offences

1. 1 Giving false information on matter considered

material

2. Failing to notify change of address

3. Failing to issue receipts

56

4. Obstructing inspection of premises in order to

ascertain if premises are used for taxable goods or

services.

There are swift automatic penalties differentiated by the

types of transgression. Same of the penalties are as follows.

Penalties

1. Offence-Furnishing of false document or statement

penalty-liable on conviction to a fine of twice the

amount under declared.

2. Offence - evasion of tax:

Penalty - liable on conviction to a true of N30,000 or two

times the amount of tax being evaded, whichever is

greater, or imprisonment for a term not exceeding 3 years.

3. Offence - failure to notify change of address within 1

month of such change

Penalty - payment of N5000, 000

4. Offence - failure to issue tax invoice for goods sold or I

services rendered.

Penalty - liable on conviction to a fine of 50% on the

invoice that was not issued.

5. Offence - resisting, considering, obstructing or

attempting to hide or (obstruct an authorized officer

from performing his duty on inspection).

Penalty - liable on conviction to a fine of Nb, 000 or

imprisonment for (a term of 6 months or to both fine and

imprisonment).

57

6. Offence -failure to submit returns by taxable person

Penalty - payment of a fine of N5000 for every month in

which the failure continues

7. Offence - failure to keep proper records and accounts

for his business transaction to allow for the correct

ascertainment of tax.

Penalty - N2000 for every month in which the failure

continues

2.18 Advantages of Vat in Nigeria

The introduction of VAT has a number of benefits or

advantages that goes with it. Among these includes

1. Uniform rater of VAT, will boost trade activities and will

create a favorable atmosphere for the country‘s

economic experience

2. It will generate there revenue for the government than

the sales tax and at the same time reduce over

dependence on oil revenue.

3. The introduction of vat will widen the tax base with it‘s

in built capacity to raise more tax revenue.

4. It will reduce tax payer‘s hazards to visit tax offices and

leads to better tax compliance.

5. All goods and services taxes will be administered under

the regime

6. The introduction of VAT, will to a reasonable extent

reduce tax evasions.

58

7. VAT can be used as a tool of government fiscal policy,

by exempting some class of goods and services to

achieve specific economic objectives.

8. VAT is relatively more efficient than the former sales

tax. It has replaced inefficient, distorting or badly

administered taxes, such as taxes on capital goods,

exports or imports (Ezejelue 2001)

9. Another advantage of the Value Added Tax is its

neutrality; This means a situation where a tax has no

influence on the behaviour of both the consumers and

the producers.

10 VAT, will therefore help common people, traders,

industrialists and also the government. It is indeed a move

towards efficiency, healthy competition and fairness in the

tax system.

2.19 Disadvantages of VAT in Nigeria

There are few disadvantages that goes with the introduction

of VAT than the advantages. This still points to the fact that

VAT is a welcome tax system, inpsite of these few

disadvantages which includes

1. Its regressive nature. It means that since VAT has a

uniform rate of 5% on both luxury goods and services,

it means that the higher the income, the less the

59

percentage spent on consumption and consequently

the less the percentage paid on consumption tax.

2. The impositions of VAT have increased the prices of

most goods and services in the country. For instance a

hotel room that geos for N3000 per night is increased

to N3 150 to the advantage of the owners, who in most

cases does not remit the VAT.

3. Some argued that the imposition of VAT on raw

materials imported into the country will amount to an

additional burden on the cost of production.

4. Okpe (2001) also argued that VAT will lead to one time

increase in price inflation, high administrative cost

because of the expanded base of the tax and there is

the tendency for the tax officials to rely on the self

policing nature of the tax to do his work for him and

finally, that the burden of record keeping can be very

high a VAT agents in term of materials and the time

spent.

60

REFERENCES

Clifford, J. C. (1965) ―VAT, the British System Explained‖

pp. 44-47 London Pitman.

Dangnha Koti - (2007) Indirect Taxation. Saleua Press.

Ola, C. S. (1999) Nigeria Income TAX and Practice. Heinem

an Educational Books Nigeria Plc, Ibadan.

Seyi, O. (1993) Fundamental Princples of Nigeria Tax.

Sagriba Tax Publication.

Naiyeju, K. (1996)‖ Value Added Tax, the facts of a positive

Tax in Nigeria‖.1st Edition. KUPAG Public Affairs, pp.

97.

Chima, B. O. and Udensi C.E. (1996) Government &

Business Relations. The Nigeria Perspective, Precision

Printers and Publishers, Achara Layout Enugu.

Okpe, T. J. (2001) Guide to Nigerian Companies Taxation,

Enugu. Chiezugo Ventures.

Oyegbile S. 0. (1996) The Principle and practice of Property

Rating and Taxation. Jamesons Graphic Publishers

VAT Decree 1993 - Firs circular No. 9304. 1MF Report.

ObI, I. J. (1993) Policy and Administration of Value Added

Tax in Nigeria 3rd Edition. Ochiogu Publishers

61

Osisoma, B. C. (1990) Studies in Accountancy, Texts and

Readings; Enugu. New age Publishers

Ezejelue A. C. (2001) Primer on International Accounting.

Educational Books and Investment Limited. Port Harcourt-

Rivers State.

62

CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction

This explains how the research was conducted .It is an

explanation of the way and when the research is going to be

carried out (Okafor:1996, p37). It provides a detailed

account of the methods, to be used in collecting the data,

Why the choice of these methods what data to be collected,

how they would be gotten and analyzed (Baridan 2001, P.

198).

This chapter concentrates more on the sources of data

collected, the research population or design, sampling

procedure employed and the sample size. Besides, the

research instrument used in the data collection, the

procedure and tools for data analysis and techniques were

also discussed fully discussed in this chapter.

3.2 RESEARCH DESIGN

This means the structuring, of investigation aimed at

identifying variable, and their relationship to one another.

This is used for the purpose of obtaining data to enable the

researcher test hypothesis or answers research questions. It

is an outline or a scheme that serves as a useful guide to the

63

researcher in his effort to generate data for his study. (Asika:

2006. p.2‘7) it is a model proof that allow the researcher to

draw inferences concerning casual relations among the

variables under investigation.

The study was conducted within Enugu metropolis,

surroundings and VAT office in particular or the Federal

Inland Revenue Services Office at Okpara Avenue. The

Choice of Enugu was painstakingly considered owing to its

representation, accessibility and limited time constraints as

well as financial difficulties to enable this research cover the

whole VAT fraternity in Nigeria

3.3 SAMPLING TECHNIQUES

Sampling is the process of selecting a part of a population to

represent a whole. The researcher used judgemental

sampling (JS) in the selection of sample in the study The

research was conducted on the basis of giving equal right to

selected males and females in the strata. This enabled the

researcher to sample the view of all the groups under

investigation on the implication of VAT

3.4 SAMPLE SIZE/POPULATION

Population consists of the summation of items or individuals

where sample can be drawn.

64

This study centered on VAT Services Office in Enugu

metropolis where the researcher used her judgmental

sampling to pick eighteen (18) persons, constituting of

senior and management staff of VAT office.

Eight (8) manufacturers were selected for this research, of

which twenty six (26) persons were sampled; three (3)

persons from each firm, with exception of Innoson Technical

Industrial Company Limited were I sampled five (5) persons

because of the big size of the company. See appendix for the

list of manufacturing firms.

Eleven (11) wholesalers in and around Enugu metropolis

were sampled, I picked three (3) persons each from each

wholesaler precisely the manager, accountant and cashier.

This made the number of wholesalers to be thirty-three (33)

in all. The appendix is also attached.

Eleven (11) service providers were selected for this work, of

which three (3) each were picked from each service providers

made up of the manager, the accountant and the supervisor.

Fifty-two (52) persons were randomly sampled from the

consumers in and around Enugu metropolis, while fifty-four

(54) retailers were also sampled from both in the street and

market in and around Enugu metropolis.

65

3.5 Data Collection Techniques

The data collection techniques form main part of the study.

The data for this study were obtained partly from the

primary source, which were questionnaire issued to the

respondents, information gotten from the oral interview

administered, while the secondary source were most

published materials, such as text books, newspapers,

scholarly journal and government documents and related

materials on the topic.

3.6 Data Analysis Techniques

Both quantitative and qualitative methods were employed in

the data analysis. For quantitative aspects, Statistical

Package for Social Sciences (SPSS) and excel, frequency

distributions, percentages and descriptive analysis of

assessing the implication of Value Added Tax on revenue

generation in Nigeria were also employed.

Data collected were collated and analyzed using various

quantitative statistical models such as bar chart and pie

chart. Each data was examined and analyzed on its merit

and grouped into the various aspects of information

requirement for the purpose of this project work. The

findings were critically examined again to make sure that

they were not incongruous with the research objectives and

66

hypothesis. The findings which will be discus in the next

chapter are presented in statistical form, while chi-square

was used to test the hypothesis based on its scientific

nature. The formular for the chi-square used in this study is

as follows.

X2 = (O—E)2

E

Where X2 = is the computed chi-square

O = is the observed frequencies

E = is the expected frequencies

= is the summation sign

3.7 Validity and Reliability Test of Instrument

Validity is defined as an extent to which a test measures

what it is supposed to be measured. Another term for it is

―relevance‖ (Baridan 2001) the objective is to obtain the true

value of the variable being used. Validity, based on content,

could be face validity. Face validity deals with researchers‘

subjective evaluation while sampling validity deals with

whether a given population of situations is adequately

sampled by the measuring instrument in question. It is

based on expert judgment.

In this study, questionnaire was given to validate its content

and expert judgment on the subject matter in the field of

67

accounting was sought and agreements among the

specialists were reached.

Reliability: Data are said to be reliable if they are

consistently accurate and precise. To ensure reliability in

the study, a section of question was on VAT to know its

implication to revenue generation in Nigeria. The variable

being studied has undergone no real change and

measurement of the object is made over a period of time.

68

REFERENCES

Okafor, U. S. (1996) Marketing Research and Project Writing

guide World Communication Ltd. Ikeja Lagos.

Alugbo C. C. (2002) A practical guide to project writing Credo

publications, owerri, Imo state.

Ban dam, D. M. (2001) Research Methods in Administrative

Science 2nd edition, road 1 Port Harcourt.

Asika N. (2006) Research Methodology in the Behaviour

Sciences. Longman Nigeria Plc, Ikeja Lagos.

Onodugo V. A,. Ugwuonah G. E. and Ebinne E. S. (2010)

Social Science Research, Principles, Methods and

Applications. El-Demark Publishers Enugu.

69

CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND

INTERPRETATION

4.1 Introduction

The focus of this chapter is on the analysis of the data

collected from the field of study according to the responses

given by the respondents. In all, two hundred and sixteen

questionnaires were distributed among the VAT office staff,

wholesalers, retailers, service providers, manufacturers, and

consumers out of which one hundred and eight nine were

retrieved. The researcher also contacted other Revenue

Agencies to have additional information on the impact of

Value Added Tax on the Nigeria Economy, which were

equally analyzed.

4.2 DATA ANALYSIS

4.2.1 RESPONSE RATE

The questionnaires were given to the population mentioned

above, which consists of the VAT office staff, the

manufacturers wholesalers, service providers, retailers and

the consuming public.

70

Table 4.2.1 Sampled questionnaires and response rate

Population

Total

questionnaire

sampled

No of

returned

questionnaire

% rate of

returned

questionnaire

VAT office 18 18 9%

Manufactures 26 23 12%

Wholesalers 33 26 13%

Service

providers 33 29 15%

Consumers 52 44 27%

Retailers 54 49 24%

Total 216 189 100%

Source: Computed from the questionnaire.

From the table above, it was discovered that 216

questionnaires were given out and 189 returned.

71

Table 4.2.2 Demographic Data of Respondents

Sex Sub-total % Rate

Male 113 60%

Female 76 40%

Total 189 100%

Age group

20-29 34 18%

30-39 45 24%

40-49 59 31%

50—above 51 27%

Total 189 100%

Educational qualification

GCE/SSCE 36 19%

OND/NCE 30 16%

HND/B.Sc 66 35%

MI3A/M.Sc/P.hd & above 57 30%

Total 189 100%

Source: Computed from the questionnaire

The information above shows that out of 189 respondents,

113 were males while 76 females, showing that they were

more male respondents, than the females, secondly, the Age

Group show that the productive active population was

mainly represented considering their age brackets.

It was also realized that the population of people with

educational attainment above GCE/SSCE is more

72

constituting about 81% of the total population sampled. This

means that the researcher has an advantage of interviewing

people that knows much about VAT and its implication on

the revenue generation in Nigeria.

Table 4.2.3: Types of Business Activities

Sex Sub-total %Rate

Vat officer staff 18 34

Manufacturer 23 44

Wholesaler 26 50

Service provider 29 55

Consumer 44 84

Retailer 49 93

Total 189 360

Source: Field work 2011.

Figure 4.2.1: Types of Business Activity

Source: Field work 2011.

93

84 55

50

44

34

Vat Office

Manufacturers

Whole salers

Service Providers

Consumers

Retailers

73

From the above figure, the total sample size shows a total

figure of one hundred and eighty nine( 189) which consists

of vat office staff, wholesalers, service providers, retailers,

manufacturers and consumers.

No. 6: What category is vat classified.

Table 4.2.4: Classification of VAT

Category No of

Respondent %

Consumption Tax 85 45%

Income Tax 59 31%

Input Tax 19 10%

Export/Import Tax 26 14%

Others 0 0

Total 189 100%


Figure 4.2.2: Bar Chart (classification of vat)


74

From figure 4.2.2 above, majority of the respondents

classified VAT as Tax on consumption and this can be

attributed to the knowledge gained by payers. They

represented 45% while 31% of the respondents classified

VAT as tax on income. Other classification of VAT identified

by the respondents are tax on input and tax on export and

import which are represented by 17% and 24% of the

respondents view. This implies that the level of education

gained and level of knowledge gained cannot be reconciled.

Question No 7: The implementation of VAT has positive

impact on the Economy of Nigeria.

Table 4.2.5: The impact of VAT in Nigeria

Response No of

Respondent %

Strongly agree 75 41

Agree 53 28

Undecided 9 5

Disagreed 30 16

Strongly disagree - 19 10

Total 189 100%


The implementation of VAT has impacted positively to the

Nigerian economy. This was identified by majority of

respondents as worthwhile. This represents 69% of

respondents view in the table above, 26% of the respondents

75

however stated that it has no positive impact while 5% were

undecided on the issue.

Question No 8: Do you think that the collection of VAT in

Nigeria is very effective.

Table 4.2.6: VAT Collection in Nigeria

Response No of Respondent %

Yes 81 43%

No 108 57%

Total 189 100%


The collection of VAT in Nigeria is not efficient and effective.

This was stated by 57% of the respondents while 43% of the

respondents stated otherwise. Reasons for the inefficiency of

VAT collection in Nigeria are the inadequate education in

VAT and the non-proper accounting of VAT revenue due to

fraud.

Question No. 9: Do you think that the current 5% VAT rate

is Okay in Nigeria?

Table 4.2.7: VAT rate in Nigeria


Yes 164 87

No 25 13

Total 189 100%


76

The 5% VAT rate in Nigeria is okay. This was stated by 87%

of the respondents while 13% stated otherwise in the above

table.

Question No 11: What efficient and effective method of

communication should be adopted to educate the populace

on VAT?

Table 4.2.8: Medium of education of VAT

Response No of Respondent Degree

Television 51 97

Radio 36 69

Print media 20 38

Community

work/seminars 30 57

Information

VAN/other‘s 52 99

Total 189 360


77

Figure 4.2.3 Pie Chart (Medium of education on vat)


Source: computed from the questionnaire

The above table shown that majority of the respondents (47)

favors information, van as the effective medium, of

education for vat, while television and radio were rated okay

by 51 and 36 respondents respectively, while community

workshops/seminars and print media were supported by 30

and 20 respondents.

TELEVISION

PRINT MEDIA

COMMUNITY WORK /SEMINARS

INFORMATION VAN / OTHERS

99 97

69 38 57

78

Question No. 12: Do you think that VAT staffs are motivated

enough for effective VAT collection in Nigeria.

Table 4.2.9: Motivation to VAT staff


Yes 136 72

No 53 28

Total 189 100%


Majority of the respondents‘ feels that the VAT staffs are

motivated enough to do their work effectively. This according

to the table above represents 72% of respondents views,

28% of respondents however feel that the VAT staffs are not

motivated enough.

Question No. 14: In your own opinion has the imposition of

VAT impacted the consumption patterns of Nigeria.

Table 4.2.10: Impact of vat on consumption pattern


Yes 146 77

No 43 23

Total 189 100%


The above shows that majority of the respondents agreed

that the consumption patterns is Nigeria was some

79

influenced by VAT. This was represented by 146

respondents, while 43 respondents however, had contrary

opinion.

Question 17: In your own assessment, do you agree that the

imposition of VAT has improved the prospective business

and industries in Nigeria.

Table 4.2.11: Effect of Imposition of VAT on businesses

and industries.


Strongly agree 45 24

Agree 59 31

Undecided 11 6

Strongly disagree 44 23

Disagree 30 16

Total 189 100%


From table 4.2.11 above, it was discovered that greater

number of the respondents are of the opinion that VAT has

improved the prospects of businesses and industries within

the country. This is represented by 54% of the total

respondents while 6% were undecided on the issue.

However, 39% disagreed with the above statement or

opinion.

Question No. 19: Has the implementation of VAT any

challenges at all?

80

Table 4.2.12: Challenges to VAT implementation and

Administration


Yes 136 72

No 53 28

Total 189 100%


From the table above, about 72% of the total respondents

agreed that VAT implementation and administration has

some challenges in Nigeria while 28% of the total

respondents, however had a contrary opinion.

Question No. 20: Has the adoption of VAT any positive

impact on the Nigeria Economy.

Table 4.2.13: Impact of VAT on the Nigeria Economy.

Response No o f Respondent Degree

Yes 162 309

No 27 51

Total 189 360


The above figure shows that about 162 respondents agreed

that the imposition of vat has a positive impact On the

Nigerian economy

81

Figure 4.2.4 pie chart

Source: Compute from the questionnaire

Source : computed from the questionnaire

The above figure shows that about 162 respondents

agreed that the imposition of vat has a positive impact on

the Nigerian Economy while about 27 respondents has a

contrary opinion.

4.3 TEST OF HYPOTHESIS

The data collected were analyzed. The stated hypotheses

were tested with chi-square statistical tool under the

following headings and procedure.

i. State the hypothesis

ii. State the statistical tools used

iii. Test the hypothesis

iv. Take the decision

YES

NO

51

309

82

4.3.1 Test of Hypothesis (Ho1)

I. Statement of Hypothesis

Ho1: Value Added Tax has no economic impact on the

consumption patterns of Nigeria

II. The statistical tools used.

Data for testing this hypothesis was obtained from question

no 14 from the questionnaire. (Appendix A) chi-square used

in this study is as follows

X2 = (O-E)2

E

Where X2 = is the computed chi-square.

O = The observed frequency

E = The expected frequency

= The summation sign

The table 4.2.10 was used for this analysis

iii. Testing the hypothesis

Table 4.3.1: Calculation of chi-square for hypothesis one

(Ho1)

Responses O E O-E O-E2 O-E2

E

Yes i46 77 69 4761 61.83

No 43 23 20 400 17.39

Total 189 100 79.22

83

Source: Computed from field survey

Computed chi-square (X2) = 79.22.

Table value =

df = (m-i) (n-i)

df = 2-i) (2-i)

df = 1x1=1, =3.84.

iv. The Decision Rule

A decision rule is the statistical objective procedure, which

guides the researcher as to whether a particular hypothesis

is accepted or rejected from a set of data.

In testing the above hypothesis, the decision rule states that

at 0.5 level of significance with 1 degree of freedom of the

calculated value of chi-square X2>X20, reject Ho and accept

Hi, where X20 is the table value of 3.84.

v. Take the decision

The chi-square shows that the calculated value of 79.22 is

greater than the table value of 3.84 at 1 degree of freedom

and at a probability level of 0.5. SO the (H0i) null hypothesis

is rejected and the alternate hypothesis (Hi) upheld, that

―Value Added Tax have economic impact on the

consumption pattern in Nigeria.

84

4.3.2 Test of Hypothesis (H02)

Ho2: Value Added Tax does not have positive impact on the

Nigerian Economy.

ii. The statistical tools used


no 7 from the questionnaires (Appendix A) as analyzed in

table 4.2.5. Chi-square was used as the statistical tool to

test the hypothesis. The formular for-chisquare for this

study is as follows.

X2 = (O-E)2

E


O = Observed frequency

E = Expected frequency

= Summation sign


85

Table 4.3.2: Calculation of chi-square for hypothesis two

(Ho2)


E

Strongly agreed 77 41 36 1296 31.61

Agreed 52 28 24 576 20.56

Undecided 9 5 4 16 3.2

Disagreed 32 16 16 256 16

Strongly disagreed 19 10 9 81 8.1

Total 189 100 79.47


Computed chi-square (X2) = 79.47

Table value = (X20)

df = (m-1) (n-1)

df = (5-1) (2-1)

= 4x1=49.488

iv. The decision rule

The decision rule stats that a 0.5 level of significance, with 4

degree of freedom, if the computed chi-square value X2>

X20, reject null hypothesis (Ho2) and upheld alternative

hypothesis (H2), where X2o is the table value of 9.488 or

9.49.

v. Take decision



86

and at a probability level of 0.5. This result shows that the

alternate hypothesis (H2) that represents the positive

response tested Significant and it was upheld that ―value

added tax have positive impact on the Nigeria Economy.


1. Statement of Hypothesis

Ho3: Payment of VAT has not improved the prospects of



The decision rule stats that a 0.5 level of significance, with 4

degree of freedom, if the computed chi-square value X2>

X20, reject null hypothesis (Ho2) and upheld alternative

hypothesis (H2), where X2o is the table value of 9.488 or

9.49.

v. Take decision




alternate hypothesis (H2) that represents the positive

response tested Significant and it was upheld that ―value

added tax have positive impact on the Nigeria Economy.

87


i. Statement of Hypothesis

Ho3: Payment of VAT has not improved the prospects of


ii. The statistical tools used

Date for testing this hypothesis was obtained from question

no 17. from the questionnaire (Appendix A) as analyzed in

table 4.2.11. Chi-square was used as the statistical tool to

test the hypothesis. The formular for the study is as follows.

X2 = (O-E)2

E

Where X2 = is the computed chi-square

O = observed frequency


= Summation sign

88


Table 4.3.3: Calculating chi-square for hypothesis 3 (Ho3)

Responses O R O-E O-E2 O-E2

E

Strongly agreed 45 24 21 441 18.37

Agreed 59 31 28 784 25.29

Undecided 11 6 5 25 4.17

Disagree 44 23 21 441 19.17

Strongly disagree 30 16 14 196 12.25

Total 189 100 79.26


Computed chi-square (X20) =79.26

Table value = (X20) = 9.488

Table value df = (rn-i) (n-i)

= (5-1) (2-1)

= 4x1 =4.


The decision rule states that at 0.5 level of significance, with

4 degree of freedom, if the computed chi-square value X2>

X20, reject null hypothesis (Ho3) and upheld alternate

hypothesis (H3) where X2 is the table value of 9.488.

v. Take decision



89


alternate hypothesis. (H3) that represents the positive

response was upheld which means that ―Value Added Tax

has positive impact on the Nigeria Economy and the null

hypothesis rejected as a result.

4.3.4 Test of Hypothesis (H04)

I. Statement of Hypothesis

Ho4: There are no challenges confronting the implementation

and administration of VAT in Nigeria.

II. The statistical tools used


no.19 from the questionnaire (Appendix A) as analyzed in

table 4.2.12. chi-square was used as the statistical tool to

test the hypothesis. The formular for chi-square for this

study is as follows.

X2 = (O-E)2

E


O = Observed frequencies


= Summation sign

90


Table 4.3.4. Calculating chi-square for hypothesis 3

(H03)


E

Yes 136 72 64 4096 56.9

No 53 28 25 625 22.32

Total 189 100 79.22


Computed chi-square (X2o)= 79.22

Table value = (X20) = 3.84

Table value df = (rn-i) (n-i)

= (2-1) (2-1)

= l x l = 1 = 3.84

iv. The Decision Rule

The decision rule states that at 0.5 level of significance, with

1 degree of freedom, if the computed chi-square value X2 >

X2o, reject null hypothesis (H04) upheld alternate

hypothesis (H4), were X20 is the table value of 3.84.

v. Take decision


greater than the table value 3.84 at 1 degree of freedom and

at a probability level of 0.5. So the (H04) null hypothesis is

rejected and the alternate hypothesis upheld, that ―there are

91

challenges confronting the implementation and

administration of vat in Nigeria.

92

REFERENCES

Alugbo, C. C. (2005). A practical guide to project writing.

Credo publication, Owerri Imo State Nigeria.

Asika N.(2006): Research Methodology in the Behavioural

Sciences. Longman Nigeria Plc, Ikeja-Lagos.

Nwabuokei P. 0. (1986): Fundamental of statstics. chumez

Nigeria enterprises Agbani Road, Enugu.

Onodugo V. A., Ugwuonah G. E; and Ebinne C. (2010),

Social Science Research, Principle, Methods and

Applications. Evidence Publishers Enugu, Nigeria.

93

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND

RECOMMENDATION

5.1 Introduction

This chapter centers on research findings and the

conclusions that were drawn base on the findings. It also

made recommendation on the topic of discourse. The impact

of Value Added Tax on Nigeria economy.

5.2 Summary of Findings

The government of Nigeria in it‘s quest to increase revenue

mobilization decided to change the tax structure in order to

ensure efficiency, effectiveness in the administration of tax,

and reduce over dependency in oil as the only major source

of revenue. The sales tax were replaced by VAT in December,

1993 with the introduction of Decree 102 of 1993 which

marks the phasing out for the sales tax decree 107 of 1986,

on the grounds that the previous system encouraged tax

evasion, had a narrow base of revenue generation and

deferred the payment of tax. In view of the above assertion,

there is the need for the researcher to look into the impact of

VAT in Nigeria economy and whether the introduction of

94

VAT has any positive or negative impact on the economy.

The study revealed the following.

VAT has economic impact on consumption patterns of

Nigeria.

VAT has positive impact in Nigeria economy.

Payment of VAT has improved the prospects of

business, organization and industries in Nigeria.

The introduction of VAT has‘ been confronted with a lot

of challenges.

The decision by the government to replace the former

sales tax with Value Added Tax has been a worthwhile

one.

Though VAT has been known to be defective in some

areas it has been able to serve the purpose for which. It

was introduced to a considerable length.

It has been pointed out in the analysis that, though

there has been a tremendous increase in government

revenue with the introduction of VAT which help

improve government commitment to community

development, the ‗VAT staffs well motivated according

to the findings to increase efficiency and effectiveness

in tax collection hence their ability to go extra miles,

however the accounting system put in place by the

government to audit the accounts prepared by

corporate institutions that collect taxes on behalf of

government are very weak, hence there are false

95

declarations of sales figure that prevent full disclosure

of VAT revenue.

5.3 Conclusion

Having critically examined the research questions, tested the

hypotheses, and the research findings, the following

conclusion was made based on the information gathered.

VAT has actually improved the economic development

of the country with much implication on the revenue

generation of Nigeria. This can be seem from the

projected revenue in the year of it‘s commencement

1994. out of 11 billion naira that was projected, VAT

generated N13,677 billion in the first half of 1994,

which is about 24% above the estimated income, for

the period. Again, over N7.791 billion was realized from

VAT on imports and N5,886 billion on non-import. VAT

as stated in 1996 budget. speeches overshot the 1995

estimates by yielding over N2 1 billion. Also the five

hundred and eighty nine (589) local governments in

Nigeria in 1995 got VAT revenue of N6 1 million while

Federal Capital territory earned about 7.01 billion from

VAT in the first three months of 2005.

Payment of VAT has improved the prospects of

business organizations and industries in Nigeria to an

extent, which we are all witness today for instance,

there has been an improvement in power supply

96

recently and stability in the prices of petroleum and

allied products.

These has been a lot of motivation to VAT staffs to

increase their efficiency, this could be seen from their

special salary structure different from other

government ministry or parastatals like them. That is

the federal Inland Revenue service (FIRS).

Finally, Despite the Positive side of the introduction of

VAT, there are still the views of the opposition which to

an extent portrays the policy in a negative form or

perspectives.

5.4 Recommendations

On the basis of the findings that have been established and

the conclusion drawn from the study, following

recommendation are necessary.

The government should adequately make provision for

retrieving the proceeds of VAT from companies and

other agents of collection.

From the above, it is expected that in a given tax

system such as VAT an effective tax administration

would yield maximum revenue with a minimum cost.

This however depends on the quality of the machines

for tax administration which include manpower

devoted to tax collection and assessment, the

97

equipment and VAT Decree. When the people come to

understand VAT better and it‘s benefit, the economic

compliance would be greater and therefore compliance

cost would be smaller on the other hand, when the

voluntary compliance is great, the VAT administration

would be easier and giving the tax structures, the

greater revenue yield.

Seminars and workshops so far organized on this issue

are narrow in its scope and design. These should be

functional VAT offices in every council area to

coordinate a vigorous campaign to educate people and

seek their cooperation. This will no doubt erode the

negative attitude that some of the consumer‘s have

developed towards, VAT.

VAT has a good chance of working in Nigeria. If it

receives the cooperation of tax collectors, if however,

people continue to evade tax colluding with tax

collectors as witnessed on sales tax, no meaningful

achievement would be made.

Again, enforcement of penalties and addition returns

assessment provision could go a long way in enhancing

VAT collection.

Fast disposition of tax cases will help administration

machinery.

98

A good tax system most ensure that tax laws which

include VAT laws must satisfy the basic principles of

taxation.

The list of VAT exemption items should be clearly

defined in simple language. This should be properly

articulated to ensure those goods that are vatable and

those goods that must be exempted.

Suggestions for Further Research

It has been said, time and again, that knowledge is

accumulative and none is an inland to itself. (Onodugo et al

2010). It is on this note that the researcher acknowledge the

fact that inspite of the efforts made, there are still vital areas

that the study could not get into due to the constraint of

time, resources and other hindering factors. It was

suggested that the study could be carried out in the other

part of the country since the researcher focused on only a

state in Nigeria.

Further researchers should look out the relationship

between Value Added Tax and revenue generation in

Nigeria.

Further study should also look critically at the negative

impact and implication of value added tax in our

economic body policy.

99

BIBLIOGRAPHY

Aguolu O. (1999) Taxation and Tax Management in Nigeria,

Enugu, Meridian Associates.

Alugbo C. C. (2002) A practical guide to project writing credo

publications owerri, Imo estate.

Alugbo, C. C. (2005). A practical guide to project writing.

Credo publication, Owerri Imo State Nigeria.

Asika N. (2006) Research Methodology in the Behaviour

Sciences. Longman Nigeria Plc, Ikeja Lagos.

Baridan, D. M. (2001) Research Method in Administrative

Science. 2nd edition, road Port Harcourt, Shevr

Books Associates.

Chima, B. 0. and Udensi C. E. (1996) Government &

Business Relations. The Nigeria Perspective

Precision Printers and Publishers, Achara Layout

Enugu.

Clifford, J. C. (1965) ―VAT, the British System Explained‖

pp. 44-47 London Pitman.

Dangnha Koti - (2007) ―Indirect Taxation‖. Saleua Press.

Evidence Publishers Enugu, Nigeria.

Ezejelue A. C. (2001) Primer on International Accounting.

Educational Books and Investment Limited. Port

Harcourt - Rivers State.

Gupta, R. N. (2006) Business Organization and Management.

Rain Nager, New Delhi Management

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Naiyeju, K. (1996) Value Added Tax, the facts of a positive

Tax in Nigeria. 1st Edo. KUPAG Public Affairs, pp.

97.

Nwabuokei P. 0. (1986): Fundamental of statistics.chumez

Nigeria enterprises, Agbani Road, Enugu.

Obi, I. J. (1993) Policy and Administration of Value Added

Tax’ in Nigeria 3rd Edition. Ochhiogu Publishers

Okafor, U. S. (1996) Marketing Research and Project Writing

guide World Communication Ltd. Ikeja Lagos.

Okpe, T. J. (2001) Guide to Nigerian Companies Taxation,

Enugu. Chiezugo Ventures.

Ola, C. S. (1999) Nigeria Income TAX and Practice. Heinem

an Educational Books Nigeria Plc, Ibadan.

Onodugo V. A. Ugwuonah G. E. and Ebbinne E. S. (2010)

Social Science Research, Principles, Methods and

Applications. El-Demark Publishers Enugu.

Osisoma, B. C. (1990) Studies in Accountancy, Texts and

Readings; Enugu. New age Publishers.

Oyegbile S. 0. (1996) The Principle and practice of Property

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Publishers

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VAT Decree 1993 - Firs circular No. 9304. 1MF Report.

101

APPENDIX A

School of Post Graduate Studies,

Faculty of Business Administration,

Department of Accountancy,

University of Nigeria,

Enugu Campus

18/ 1/20 12

Sir/Madam,

QUESTIONNAIRE FOR COMPLETION

I am a Post-graduate student of the above named Institution

carrying out a research work on ―The Impact of Value Added

Tax (VAT) on Nigeria Economy‖, as part of the requirement

for the award of master‘s degree in Business Administration

(MBA- Accountancy).

Please, could you spare a few minutes of your time to

respond briefly and as precisely as possible to the questions

poised on the attached questionnaire.

All information elicited through this medium, will be held in

strict confidence and used for the research purpose alone.

Thank you for your- co-operation,

Yours faithfully,

IGWEONYIA OBIAGELI.V

102

INSTRUCTION

Please kindly supply the following information required by

ticking (v) the box that appears best or suitable to you. All

information given will be held in confidence.

(Background Information)

1. Gender: Male Female

2. Age group: 20-29 30-39

40-49 50- above

3. Educational qualification

GCE/SSCE OND/NCE

HND/BSC MBA/M.Sc/PhD & above

SECTION B

The concept of VAT

4. Type of Business Activity

Manufacturing

Wholesale

Retailing

Service provider

Consumer/consuming

Others

5. Do you understand the concept of VAT

Yes No

6. What category is VAT classified

Tax on consumption

Tax on income

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Tax on inputs

Tax on export/import

Others

7. The implementation ___________

Strongly agree Agree Undecided

Strongly disagree Disagree

8. Do you think that collection of VAT in Nigeria is very

effective.

Yes No

9. Do you think that the current VAT rate of 5% is okay?

Yes No

10. Do you agree that education of VAT implementation in

Nigeria?



11. What efficient and effective method of communication

should be adopted to educate the population on VAT?

Television

Radio

Print media

Community workshops/seminars

Information van/others

12. Do you think that VAT staffs are motivated enough for

effective VAT collection in Nigeria?

Yes No

13. How often should VAT registered person be audited?

104

Once a month Once in six months

Once every three months Once in a year

14. In your own opinion, has the imposition of VAT

impacted the consumption pattern in Nigeria.

Yes No 15. Do you always insist on VAT invoices whenever you

buy goods or services? (Consumer only) Always

Sometimes Not at all

16. Do you always issue out VAT invoices to your

customers (Retails only)

Yes No

17. In your own assessment do you agree that

the imposition of VAT has improved the prospective

business and industries in Nigeria?



18. Is the issuance of VAT invoice to consumers enough for

the collection of the Tax?

Yes No

19. Has the implementation and adiministration of VAT in

Nigeria any challenges at all ?

Yes No

20. Finally in your own opinion , has the adoption of Vat

any positive impact in revenue generation in Nigeria

Yes No

105

APPENDIX B

ORAL INTERVIEW GUIDE

1. What do you understand by the Term VAT (Value

Added Tax).

2. How did you come to know about VAT?

3. What is your opinion about the adoption of VAT in our

economic system?

4. Do you think that VAT is the solution to our tax system

problem?

5. What can you say about the education of VAT in

Nigeria?

6. Can you suggest an effective way of educating the

masses on VAT?

7. Has VAT any economic impact on the consumers in

Nigeria?

8. Does the industries in Nigeria benefit in anyway from

the introduction of VAT?

9. Do you agree or disagree with the system, of VAT

collection in Nigeria?

10.Do you think that VAT can reduce Tax evasion in

Nigeria?

106

APPENDIX C

Manufacturing Firms Visited:

1. Hardis and Dromedas Limited at plot 107 Emene

Industrial Layout, Enugu State.

2. INNOSON Technical Industrial Company Limited at

Eniene Industrial Layout, Enugu State.

3. Alo Aluminum Company at Emene, Enugu State.

4. Emenite limited at Ernene, Enugu State.

5. El-Shaddai Aluminum Company at Emene, Enugu

State.

6. Phinomar Nigeria Limited at Ngwo, Enugu State.

7. Brozar Chemical Limited at No 10 Hill-top Avenue,

Ngwo, Enugu State.

8. Paulson consolidated Enterprise Limited at Ugwuaji,

Enugu.

107

APPENDIX D

List of Some Services Provider Visited

1. Hill-top Motel Enugu, located at Ngwo, Enugu State.

2. Niger Optical Services Limited at Zik Avenue, Uwani in

Enugu State.

3. Melody Hotels at Osadebe Street, New Layout, Enugu

State.

4. Liberation Hotels Limited at Umuaniabor Street,

Garriki Awkunanaw, Enugu State.

5. Emmason Fumigation Services at New Heaven, Enugu

State.

6. Army Joe Laboratories Limited at Ibaim Street, Enugu

State.

7. First Hotels Limited at Osadabe Street, New Layout,

Enugu State.

8. Jec Optical Services Limited at Zik Avenue, Uwani,

Enugu State.

9. ENTRACO Limited, Enugu State.

10. Eastern Shop at Ogui Road, Enugu State.

11. Zodiac Hotels Limited, League Avenue, Enugu State.

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APPENDIX E

List of Wholesalers

1. Venco Enterprises - Distributor to Nigerian Bottling

Company (9th Mile Corner, Ngwo), Enugu State.

2. Okwute Ventures - Distributor to Innoson Technical

Company, dealer on plastic tanks and other plastic

products.

3. A.G. Igboka & Sons Ltd. - Distributor to P.Z.

Manufacturing Company, Enugu main market.

4. Albertina Nigeria Limited - Distributor to P.Z.

Manufacturing Company in conjunction with Hairer

Thermocool, Zik Avenue.

5. Emmy Holding Nigeria Enterprise, Garriki - Distributor

to Nigerian Breweries Plc.

6. Ezionye Holdings Nigeria Limited, Garriki - Distributor

to Nigerian Bottling Company, (9th Mile Corner, Ngwo),

Enugu State.

7. Benobi and Sons Nigeria Ltd. - Distributor to Innoson

Nigeria Limited. Dealer on plastic products, Emene,

Enugu.

8. LG World at Ogui Road - Dealer on electronics.

9. GODAC & Sons Stores - Dealer on textile material, Rail

Lines Ogbete.

10. Fine Brothers Nig. Ltd. - Dealer on phones and phones

accessories.

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11. Beny Brother Ltd. - Dealer on electronics, Zik Avenue,

Enugu.

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